Investment Memo: 3DOS v1.1
Jan 3, 2024
Date:
v1.0 Oct 25th, 2022
V1.1 July 10th, 2024
Author(s): Joseph Argiro , jargiro@ironkeycapital.com
Company: 3DOS is a marketplace for designers, manufacturers, and businesses looking for a turn-key 3d printing solution. The company enables anyone to upload a design, receive
royalties, and have it made anywhere in the world.
Their software platform reduces the cost to on-demand manufacture by up to 96% by providing the software layer to connect 3d printing machines to consumers and designers worldwide.
The company has signed key partnerships with Ozzy Osbourne, Global Merchandising and
manufactured.com. It will leverage its existing network of 180,000+ designers and 55,000 3D printers to bootstrap adoption.
The company is backed by notable investors and advisors including Vulcan Capital(Paul Allen), xCEO of Docusign, CTO of Salesforce, and a LinkedIn co-founder.
Reference Materials: Pitch deck (here), data room (here)
Reasons to believe:
1. Real world networks and infrastructure can be built by incentivizing people with digital tokens i.e. proof of physical work thesis
2. Marketplace business model is now permeating various physical products sectors that were previously resistant to digital transformation. The 3d printing process is fragmented, requires multiple manual touchpoints, and is ripe for disruption. There is currently no platform or software solution to:
As a designer: Monetize 3d printing design work in an effortless way
As a business: Find a 3d printer near you and/or a designer to spin up a merchandising effort
3. Team has built multiple businesses in additive manufacturing space, and has an existing network of designers and 3d printers
Risk Factors:
1. Traction Conversion - It is unclear when 3DOS will begin to generate revenue. There is integration risk of porting the existing network of designers to the new platform solution .
A main challenge for 3DOS will be onboarding designers onto the platform. How will 3DOS incentivize designers to join the platform? Achieving critical mass with a 3 sided marketplace is no small feat. Onboarding manufactures seems to be no problem at all, given the companies’ existing relationships such as StanleyX and Forecast 3D.
2. GTM strategy - how are they acquiring new(outside) designers and businesses to use the platform? How will they incentivize user adoption?
Market:
First, let’s take a step back and explore some similar experiments within the proof
of physical object blockchain space. There are various projects attempting to connect
the physical and digital worlds, which is a solid indication that blockchain technologies
will eventually find a product market fit here in some capacity. Phygi.io is one example,
which simply allows you to turn your NFTs into physical posters.
There is certainly a market for this, but the opportunity here is much larger. Another
a project with a bigger vision is the Galileo protocol, which allows for the creation of pNFTs(tokenization real world assets). This will unlock additional demand at the margin through the fractionalization of assets.
This is great, but it still does not solve the proof of authenticity problem. The problem
needs to be solved at the source of creation to enable real proof of authenticity and
the fair distribution of royalties to creators and designers.
The global on-demand manufacturing market is $12 Trillion and growing at 20% per year. The 3d printing market size is approximately $12.6B with the USA occupying roughly half($6.7B).
About 2.2 million 3D printer units were shipped worldwide in 2021 and shipments
are expected to reach 21.5 million units by 2030. The average lifespan of a 3d printer is 5-10 years old.
2M units / 5 years = .44M units operational ~ assume 10% are damaged, unused, or retired.
4M operational units x used 100 times / year x $ 7500 avg order size = $300B in Annual revenue.
Assume 3DOS takes 5% of the market: 300B x .5% = $15 Billion
$15B @ 20% take rate = $3B Serviceable Obtainable Market(SOM)
Persistent inflation continues to drive the cost to manufacture higher. Pandemic induced supply chain inefficiencies continue to lengthen production times. Local 3D printing solutions offer an attractive alternative to businesses that are reliant on overseas manufacturing.
The graph below shows how countries are beginning to adopt 3D printing. 3DOS will help accelerate this trend by making 3d printers more accessible and cost effective.
GTM:
3DOS will penetrate the 3d printing market first, using its existing network of 3d printers, and then expand to incorporate more advanced types of additive manufacturing.
3DOS will go to market in 4 different channels:
1) Tap into the users of its existing portfolio of additive manufacturing businesses
2) Leverage 3d print merchandising partnerships with high value, high visibility, high margin products to create awareness and drive demand
a) Exclusive 2 year NFT 3D print license with world’s largest entertainment merchandise manufacturer
b) Currently running pilots with antefame.com, manufactured.com
c) *Confidential* in negotiations with Caterpillar, HP 3D printing
3) Outbound and inside sales: leverage existing sales force in US and EU
4) Brand & Influencer led
a) Ozzy Osbourne merchandise will feature 3DOS as exclusive partner
Business Model and Economics:
Defensibility:
Proprietary Technology:
1) 3D manufactured parts can now be proven authentic which will drive adoption of localized
manufacturing methods
2) Designers will be able to easily monetize their work via 3DOS’s proprietary NFT licensing
technology
Scarce Assets and Knowledge:
3) 3DOS has an existing database of 9M+ 3d printing designs
4) Network of 55,000 3d printers and 180,000 designers
Once 3DOS achieves critical mass, the platform will be highly defensible given the current manual touchpoints and complexity of the 3d printing value chain.
How do designers get compensated today?
- They don’t, because there is no way to protect royalties and IP
- they are high paid employees at big manufacturing companies
3DOS focuses on allowing designers to directly monetize their creations and control their IP.
How is this differentiated for a 3D printer owner?
- You can plug in a 3d printer and immediately start receiving orders
- 3D printing manufacturers like GKN Forecast 3D, have 36 HP 3d printers, and they have to spend like 20-35% of their budget minimum to acquire clients and run 3d printing jobs on their machines. Taking orders is hell, and very old fashioned, phone calls, spending 20k a month on google ads, trade shows, etc.
Key Competitors:
All of these competitors below are publicly traded incumbents; there is very little startup competition. 3DOS is an acquisition target.
● 3dhubs.com acquired for $280m by protolabs
● thomasnet.com acquired for $300M by xometry
● rtfkt.com acquired by NIKE for undisclosed amount
Funding: Current: $8.2M raised at a $50M valuation with participation from a long list of VCs, including RedBeard Ventures and notable angels such as Anatoly(Solana Co-founder).
Team: CEO and CTO are subject matter experts in additive manufacturing. They have already built 3 existing businesses in this market over the last 10 years. I would like to see them add to their C-suite with a CMO and/or COO. The founders invented the world's first 3D printing operating system with 200k+ users, 2.8M+ parts, 9M+ CAD designs, across 120+ countries with customers like John Deere, Google, MIT, Harvard, CalTech, Berkeley, Bosch, the British Army, US Navy, US Air Force, and NASA.
Conclusion:
The 3DOS DePin platform has unlocked a new market by enabling 3d printing services to be accessible globally and without friction. 3DOS enables one-click print for any brand trying to spin up a merchandising effort, making the process seemingly effortless. This allows anyone to manufacture at any place in real time, facilitating the transition to a decentralized manufacturing economy. This will allow anyone to procure 3DOS tokens(pay for print access) which ostensibly creates new demand for 3d printing machines from a previously untapped and unreachable demand center(i.e consumers and brands).
This will allow any brand or business to spin up merchandising efforts at a fraction of the current cost, and reduce reliance on overseas manufacturers to produce physical goods.
3DOS connects manufacturing machines, starting with 3D printing, to a software platform that allows designers to upload and monetize their work. From there, businesses will drive demand because 3DOS introduces an easier and more cost effective way for them to spin up a merchandising side project. This will reduce fixed cost overhead, drive additional demand to existing 3d printers, and enable small businesses to own 3d printers if they so choose. This should expand utilization of existing hardware, while increasing productivity and cost effectiveness.
We can imagine a world where existing 3d printers and hardware companies leverage the 3DOS software layer to further extend their own capabilities. It is synergistic at its core for companies like HP and Stanley Black & Decker, that are starved for innovation.
3DOS has begun to penetrate the market, starting with celebrities' proof of concept programs. This physical, high margin, high value, high visibility activity should draw in the eyeballs(act as a bootstrap mechanism) needed to bring the 3DOS software marketplace layer to designers, manufacturers, and brands worldwide.
This could play out in a similar fashion to Open Sea(starting with a niche and then expanding), creating a massive explosion in economic activity for physical to digital blockchain use cases. 3DOS is starting to work with smaller mom & pop brands, before moving into more enterprise type of use cases.
3DOS is breaking down barriers to entry for independent entrepreneurs selling physical products that traditionally would be manufactured overseas(think small, low cost products like iphone cases). Via on-demand manufacturing capabilities, 3DOS has the potential to leverage crypto-economic incentives to re-introduce trust into complex supply chains. 3DOS tokens act as proof of physical work in order to pay for manufacturing real goods, effectively creating new market demand for 3d printing worldwide.
Investor FAQ
1. Who would you consider your biggest competitor?
● Protolabs & Xometry
● rtfkt.com acquired by NIKE (physical to digital market validation)
● Most competitors do not cater to the monetization and IP needs of designers
2. What insight can you share in terms of whether the market will adopt a solution like this?
● Our existing portfolio of additive manufacturing software solutions experiences near 0% churn rate of users
● This is indication of sticky customer behavior once we are able to onboard users to the platform
3. What pain point are you solving for?
● Example: Designing, manufacturing and selling an Iphone case
○ The user must find an overseas manufacturer, and negotiate a deal
○ Then, they must ship the parts to the US, only to be reshipped out to sellers on Amazon
○ 3DOS enables this process to occur all in 1 click
3. How does the process work today for designers, 3d printers, manufacturers?
● “For example, engineers in Stanley Black and Decker, have issues submitting jobs, and getting things 3d printed internally, and it takes very long time internally and externally. The iterations take a long time to happen inside the company which slows down innovation, and then once they finally have a prototype or even end use product, to take that into production is very difficult. Latency and instant access is killing innovation. It's why our first product 3DPrinterOS was so successful in reducing the latency inside companies, universities, where anyone can upload a design and get it printed inside their company or campus. Now with 3DOS, with one click, we want to break through the wall and let companies get things made on-demand, anywhere in the world, but you need IP and Royalty protection for that.”
4. Why would they adopt this?
● “End of life spare parts are a big problem. And they are looking at additive and on demand. Companies like Global Merchandising, which does products for Ozzy, 50cent, etc. they want to track their royalties and customers want to ensure it's an authentic product, whether it's Fan Merchandise, or serious aerospace parts that go into airplanes.”
5. What problem are you solving?
● Companies are plagued with inventory complexity and costs
● Look at Nike, they're stock dropped by 9% due to inventory issues.
https://www.marketwatch.com/story/nike-shares-drop-as-analysts-flag-rising-inventory issues-11664531406
● They are also getting nailed, with the cost to store products that aren't selling. https://www.supplychaindive.com/news/nike-clearing-excess-inventory-holiday-season /633138/
● We are in talks with NIke scheduling for next week! They are starting to sell limited run merch via NFTs RTFKT, they bought them for like 300M recently.
6. What are their incentives to remain on the platform?
● Costs, Easy of use, speed, protecting royalties. We are experienced in this, we have less than a 2% attrition rate on 3dprinteros. It's like Amazon, once you put your products on there, you really don't want to take them off. It's easy to distribute, track, and customers to order.
● IDEALLY we would like to see a cost ($) analysis of how this makes designers more money vs. the existing solutions.
● For example, every time a company needs to produce another batch of millions of end of life parts for equipment like caterpillar tractors or john deere equipment, that's out in the field, they have to spend 20-50, sometimes 100million to produce and store all those parts. It's a massive problem in the industry, and all those parts are then stored in warehousing.
● https://www.supplychaindive.com/news/nike-clearing-excess-inventory-holiday-season/633138/
7. What do designers do today to monetize their work?
● Massive barrier to entry, only the big boys can play. Just like before Youtube, if you wanted to run your own CNN channel, you would have had to spend millions or billions of dollars to get on air. Today, anyone can create a Youtube channel, and have more views than all the news channels combined. What Youtube did for video creators of the world, 3DOS will do for the material creators of the world. Anyone can take a 5 minute cad design class on Youtube, and be inventing and selling the next big thing, innovative door handle, medical clamp, in hours.
7. What do manufacturers do today?
● Let's start industrial 3d printing, as this is one type of manufacturing method that we will start with, and of course we will move up to other technologies like CNC, Waterjet, and ultimately full assembly. `
● 3D printing manufacturers like GKN Forecast 3D, have 36 HP 3d printers, and they have to spend like 20-35% of their budget minimum to acquire clients and run 3d printing jobs on their machines. Taking orders is hell, and very old fashion, phone calls, spending 20k a month on google ads, tradeshows, etc.
● The future state is machines broadcast their capacity, and parts go directly to the path of least resistance, capacity is automatically load balanced, people buying these machines instantly start to make money.
8. What do buyers do today?
● Most people don't even design, they just buy something made in china, put a sticker on it, and ship it out. The cost to get something injection molded, and the cost to purchase that first batch will cost you like 50-100k 1/2M minimum. Then what. What if the product you thought would sell, actually doesn't. You're dead, you'll never try another idea again.
● 3DOS smashed the barrier of entry into selling products. If it's not purchased, it's not made.
9. Can you give another example besides the iPhone case example below?
● Example: Designing, manufacturing and selling an iPhone case
○ The user must find an overseas manufacturer, and negotiate a deal
○ Then, they must ship the parts to the US, only to be reshipped out to sellers on Amazon ○ 3DOS enables this process to occur all in 1 click
Yes 2 Major Use Cases:
1) Smashing the barrier of Entry for Everyone ! People have Millions of ideas they think they can sell, we charge $10/design like buying a domain name. Some will work, many will not, but $10 to try an idea is much less than paying millions
2) For Big companies, decentralizing, and onshoring inventory, and manufacturing. As manufacturing decentralizes, they NEED a way to protect those royalties, and having everything made in one place and put in expensive inventories for years, cost way too much, much more than making it on demand. Companies need to support their end of life parts for years, and if they don't provide an easy way for their customers to simply click through a catalog and have it made, they will fall victim to the counterfeit market.
If you make it easy, and affordable for your customers to purchase directly from you, they will do it. This is what iTunes proved, after pulling away market share from Napster. People didn't want to purchase the entire CD, just one song, and they want it to be easy and digital. 3DOS aims to be the Netflix of digital parts inventories.